IMF's Economic Forecasts Are Biased in Favor of its Own Programs, Study Says

About the Author

WASHINGTON, AUG. 26, 1999-When the
International Monetary Fund (IMF) tries to predict how fast the
economies of industrialized countries will grow, it gets the
numbers about right. But when it tries to do the same for
developing countries, it consistently overstates the rate of
economic growth. Why the disparity?

According to a new study by The
Heritage Foundation, the key difference is that developing
countries receive IMF assistance; industrialized countries do not.
This suggests the IMF is biased in favor of its own programs, says
William Beach, Director of Heritage's Center for Data Analysis.

Between 1986 and 1998, the IMF
consistently made "overly optimistic" economic predictions for
developing regions receiving IMF aid, according to the study. In
the case of Africa, the IMF overestimated economic growth in every
year studied. In Central and South America it overestimated growth
in all years but two. It's also the case that the more IMF money a
region receives, the bigger the forecasting error becomes.

By contrast, the agency's forecasts
for the G-7 industrialized nations proved far more reliable. The
forecasting errors were smaller, and the IMF underestimated growth
nearly as often as it overestimated it.

IMF forecasts matter, Beach says,
because they help gauge the effectiveness of the agency's programs
and play a key role in determining the IMF's funding requests to
the U.S. Congress. The United States gives vast sums of money to
the International Monetary Fund-$18 billion in 1999 alone-and the
accuracy of the agency's forecasts "is important to policymakers in
considering appropriations for the organization."